Apple’s stock price is up about 50% year-to-date, quite a remarkable achievement for the world’s largest company.  In fact, it has more than doubled in one year!  Last Thursday, after the market close, several of the big five (see below) announced big earnings increases and then rallied Friday.  Apple rose almost 11%[1] in one day!  These are historic numbers.

Apple first hit a record $1 trillion in market cap (i.e., total market value of the company) on August 2, 2018[2], almost exactly two years ago.  In the last year, it has surged to almost $1.9 trillion[3], and we have started the countdown to the first $2 trillion company[4].  Apple also announced an old-fashioned stock split; like companies commonly did back in the day, they will split their shares (4 to 1[5]) to keep the price of each share within reach of the retail investor, even as Google shares traded up to $1,482[6] per share.

What is this all about?

We have discussed the FAAAM companies quite a bit in the last few years.  Facebook, Apple, Amazon, Alphabet (i.e., Google), and Microsoft were already the five largest publicly-traded companies in the S&P 500 and the world (by market cap) before the pandemic.  Then they all benefitted substantially from the crisis, as what they do became even more in demand and continued to be readily accessible.  These five companies have come to represent well over 20% of the value of the S&P 500, with only Facebook failing to join the $1 trillion club so far.  And it happened so fast!

We can also look at these events from a more traditional perspective – headcount.  Looking through the prism of employment, Amazon has hired 175,000 new employees this year, becoming the second-largest employer (behind Walmart) in the US.  Another remarkable achievement.

Why should I care?  What does this mean anyway?

We are in a pandemic, and the economy has been greatly affected by the measures taken to control the spread of this virus.  We have substantial unemployment, massive government spending, and major dislocations in a number of industries.  As the big five have thrived (along with many other technology-oriented companies from Zoom and Netflix to Tesla), airlines, energy, hospitality, retail, and plenty more companies have suffered.  Bankruptcies are announced almost daily.

We are watching history being made.  First of all, many big changes that were happening slowly, happened quickly.  Zoom went from 10 million daily meeting participants to 300 million[7] almost overnight.  Suddenly everyone is having Zoom meetings (or one of the other similar services) instead of coming to the office.  Boom.

Everyone is working from home.  WFH. That’s it; it has happened, and it will remain a big factor in work-life from now on.  It will take years to figure it all out.  One huge question: who needs all that office space?  Boom.

Home is a different deal now, isn’t it?  In a meeting, here comes little Betsy, or the dog!  Where are the boundaries?

Get to the point, por favor.  And what about gold, the $, inflation?

As the big five and other technology stocks have dominated, value and small stocks have lagged.  The growth/tech stocks are now highly valued by historical measures.  Small and value stocks seem to be more affected by the economic impacts of the current crisis.  Apple sells iPhones, and Facebook sells ads as malls and retailers close, and airlines cut capacity and hang on as best they can.

But markets are always looking ahead.  Amazon is doing great, but can it keep growing at the same rate?  Companies across all sectors are tightening their belts, becoming more efficient and focused.  Once demand recovers, many businesses will be able to generate higher levels of profitability than prior to COVID.  Interesting to see what key players are doing.  Jeff Bezos just sold $3 billion of Amazon[8] – guess he thinks that $3 billion can do better elsewhere. Whereas the legendary value investor Warren Buffett has recently bought almost $2 billion worth of Bank of America shares[9] – a proxy for across-the-board economic recovery.

Meanwhile, gold has risen to nearly $2,070/ounce, as the US dollar weakens against currencies like the Euro[10].  The US government is printing trillions of dollars in a series of rescue packages, the latest of which is being negotiated right now.  Traditional economics would say inflation will certainly follow, but maybe we are in a new world where the old rules don’t apply.  I honestly have no idea.

But I will leave you with some questions:

  1. Is gold telling us that this time we will see inflation, or is it acting as a hedge against other types of risk such as war?
  2. The Fed has stated clearly that it is seeking to drive more inflation. If they succeed, can they fine-tune the level of it, or will it run out of control?
  3. It seems likely that taxes will need to go up to at least attempt to cover the emergency spending, regardless of election outcomes. But the devil will certainly be in the details– how will it all turn out, and should we plan for it now?

We would love to hear from you. Have questions? Please reach out to our team.  We are here to help you through these trying and sometimes unsettling times. Be well and of good cheer.

Best Regards,

Roger Hewins

[1] Source: Morningstar Direct

[2] Saracsalinas. “Apple Hangs onto Its Historic $1 Trillion Market Cap.” CNBC, CNBC, 2 Aug. 2018, www.cnbc.com/2018/08/02/apple-hits-1-trillion-in-market-value.html.

[4] Ltd., KCI Research. “Apple: Most Expensive Valuation In A Decade (NASDAQ:AAPL).” Seeking Alpha, Seeking Alpha, 5 Aug. 2020, seekingalpha.com/article/4364795-apple-expensive-valuation-in-decade.

[5] At today’s closing price of $440/share, after the split there will be four times as many shares priced at $110/share.

[6] Source: Morningstar Direct

[7] Jbursz. “Zoom Walks Back Claims It Has 300 Million Daily Active Users.” CNBC, CNBC, 30 Apr. 2020, www.cnbc.com/2020/04/30/zoom-walks-back-claims-it-has-300-million-daily-active-users.html.

[8] CNBC. “Bezos Sells More than $3 Billion in Amazon Shares.” CNBC, CNBC, 6 Aug. 2020, www.cnbc.com/2020/08/05/bezos-sells-more-than-3-billion-in-amazon-shares.html.

[9] Tomwfranck. “Warren Buffett Adds to His Bank of America Buying Spree, Bringing Stake to 11.8%.” CNBC, CNBC, 31 July 2020, www.cnbc.com/2020/07/31/warren-buffetts-berkshire-hathaway-continues-to-buy-bank-of-america.html.

[10] Mark. “Gold Prices Notch Record Close for Fifth Straight Session as Metal Approaches $2,100.” MarketWatch, MarketWatch, 6 Aug. 2020, www.marketwatch.com/story/gold-prices-notch-record-close-for-fifth-straight-session-as-metal-approaches-2100-2020-08-06.

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